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Chapter Assignments 563 CHAPTER ASSIGNMENTS Short Exercises LO1 Management Issues SE 1. Indicate whether each of the following actions is related to (a) managing under the corporate form of business, (b) using equity financing, (c) determining dividend policies, (d) evaluating performance using return on equity, or (e) issu- ing stock options: 1. Considering whether to make a distribution to stockholders 2. Controlling day-to-day operations 3. Determining whether to issue preferred or common stock 4. Compensating management based on the company's meeting or exceeding the targeted return on equity 5. Compensating employees by giving them the right to purchase shares at a given price 6. Transferring shares without the approval of other owners LO1 Advantages and Disadvantages of a Corporation SE 2. Identify whether each of the following characteristics is an advantage or a disadvantage of the corporate form of business: 1. Ease of transfer of ownership 4. Lack of mutual agency 2. Taxation 5. Government regulation 3. Separate legal entity 6. Continuous existence L02 Effect of Start-up and Organization Costs SE 3. At the beginning of 2009, Patel Company incurred the following start- up V and organization costs: (1) attorneys' fees with a market value of $20,000, paid with 12,000 shares of $1 par value common stock, and (2) incorporation fees of $12,000. Calculate total start-up and organization costs. What will be the effect of these costs on the income statement and balance sheet? LO1 Exercise of Stock Options SE 4. On June 6, Aretha Dafoe received an option to purchase 20,000 shares of Shalom Company $1 par value common stock at an option price of $8 per share, which is equal to the market price on that date. The market price of the common stock on the date Dafoe exercises the option is $25 per share (1) What value must be estimated to determine the expense of the option on June 6? (2) What relevance does the market price per share have when Dafoe later exercises the option? L02 Stockholders' Equity SE 5. Prepare the stockholders' equity section of Fina Corporation's balance sheet from the following accounts and balances on December 31, 2010: Common Stock, $10 par value, 30,000 shares authorized, 20,000 shares issued, and 19,500 shares outstanding $200,000 Additional Paid-in Capital 100,000 564 CHAPTER 11 Contributed Capital LO1 Cash Dividends SE 6. Tone Corporation has authorized 200,000 shares of $1 par value common stock, of which 160,000 are issued and 140,000 are outstanding. On May 15, the board of directors declared a cash dividend of $.20 per share, payable on June 15 to stockholders of record on June 1. Prepare the entries in T accounts, as neces- sary, for each of the three dates. ... View Full Document

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